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Could you just sell the home to them as a seller-carry loan? That way, they are the legal owners, they are paying you the mortgage payments, and you would not have to worry about your insurance questions as they would have to insure it under their insurance. (I don't really know much about this, but maybe something to look into?)
Got it, clear on the potential fraud dilemma. In order to avoid all that it shall be match everywhere (rental property with rental hazard policy, and of course rental on tax returns). Last thing I need is fraudulent charges.
I was also googling some tax differences in second home vs rental and seems the rental would benefit our scenario.
To the comments about selling out right, I agree. The idea is this is done in a manner that protects both sides. Ultimately if they aren't able to keep up with the payment they will be removed and home will be sold for market value. They can also sell their home and simply pay off this one. We have options and this arrangement isn't contingent on fragile strings.
Much apprecaited.
I purchased a home for my inlaws, dealing with family is tricky. I made it clear I will evict them if they don't pay rent. Market rent is $1900 they pay $1400, my mortgage ins taxes etc all in is $1300. The extra $100 is rainy day fund for upkeep. I have the house in a LLC. My wife is not part of it, she wouldn't evict her parents since its in my name only I will if needed. Tread carefully.
Could you just sell the home to them as a seller-carry loan? That way, they are the legal owners, they are paying you the mortgage payments, and you would not have to worry about your insurance questions as they would have to insure it under their insurance. (I don't really know much about this, but maybe something to look into?)
You are talking about a "loan assumption", and very few mortgage loans today permit that. Most loans have a "due on sale" clause in the agreement. In other words, if you sell or transfer your interest in the property to anyone else in any way, then the entire unpaid balance at that point is due and payable to the lender... IMMEDIATELY.
If you want cash out of the home just do a Cash Out refinance.
If a transaction is so difficult to explain there's something really wrong.
You either sell the house or you don't. There is no in-between. Except this -
If you sold your home under a contract that provides for all or part of the selling price to be paid in a later year, you made an installment sale. If you have an installment sale, report the sale under the installment method unless you elect out. Even if you use the installment method to defer some of the gain, the exclusion of gain under Section 121 remains available. Refer to Publication 537, Installment Sales, Form 6252, Installment Sale Income, and Topic No. 705, Installment Sales, for more information on installment sales.
We can sell the house and let it be history. My in-laws live 5 houses down in their current home.
When they heard we were selling ours, they said no we'll keep it. Unfortunately they have sub par credit (600-620) to qualify for a decent loan. Secondly they aren't selling their current home, so definitely not enough credit to carry two loans. Lastly they are not interested in starting a 15/30 year loan off from scratch. Frankly I doubt they will even live alone for more than 10 years. (will probably end up with one of their kids, hell even in our new house).
We've discussed our concerns and how it would play it in a financial hardship situation and all sides have come to an agreement that we are all happy with. What will probably happen is they will sell their current home and use the proceeds to pay off this home, and once done we transfer ownership and done.
We can sell the house and let it be history. My in-laws live 5 houses down in their current home.
When they heard we were selling ours, they said no we'll keep it. Unfortunately they have sub par credit (600-620) to qualify for a decent loan. Secondly they aren't selling their current home, so definitely not enough credit to carry two loans. Lastly they are not interested in starting a 15/30 year loan off from scratch. Frankly I doubt they will even live alone for more than 10 years. (will probably end up with one of their kids, hell even in our new house).
We've discussed our concerns and how it would play it in a financial hardship situation and all sides have come to an agreement that we are all happy with. What will probably happen is they will sell their current home and use the proceeds to pay off this home, and once done we transfer ownership and done.
We can sell the house and let it be history. My in-laws live 5 houses down in their current home.
When they heard we were selling ours, they said no we'll keep it. Unfortunately they have sub par credit (600-620) to qualify for a decent loan. Secondly they aren't selling their current home, so definitely not enough credit to carry two loans. Lastly they are not interested in starting a 15/30 year loan off from scratch. Frankly I doubt they will even live alone for more than 10 years. (will probably end up with one of their kids, hell even in our new house).
We've discussed our concerns and how it would play it in a financial hardship situation and all sides have come to an agreement that we are all happy with. What will probably happen is they will sell their current home and use the proceeds to pay off this home, and once done we transfer ownership and done.
Your in-laws sound like a bad credit risk. Do not do business with them in an way, shape, nor fashion.
Our current home (old house) will be taken over by my in-laws in a FSBO type arrangement. To keep it simple they are putting up cash and the existing loan will remain in my name. Basically they will take over the payments and upkeep of the home as if it were theirs.
Big red flag there. Your mortgage contract likely had a due on sale clause (if you deed the house to them) that can result in the loan being called which means that the entire balance be paid immediately or foreclosure for breach of contract ensues.
Of course, there are people who get away with that dodge for years and others get caught right away.
Read your contract and see if the loan is assumable. If it is, your in-laws will have to qualify to take over the loan.
Quote:
Originally Posted by a_guerrajr
From a liability perspective, they will legally have a rental agreement and make payments to me. In the event we want to finance a large purchase, etc.
Now you are contradicting yourself. Earlier it was a sale, now it's a rental?
Quote:
Originally Posted by a_guerrajr
Questions / Concerns:
For the old house, is there much difference in insuring the home with a regular homeowners policy vs. a rental property? More so in the perspective of having to file a claim if I'm not actually occupying the home. Can't I just tell the ins. carrier that is our second home?
Wow. First mortgage fraud, now insurance fraud. Never lie to your insurance company. They will find out. And it will happen when you have a claim and you'll be pissed when it gets denied.
Quote:
Originally Posted by a_guerrajr
From a tax perspective, any + / - to having it as a rental versus a second home? Does one provide more incentive over the other?
Either way, you have to report the income and pay tax on it. With a rental you can, at least, take deductions for interest, property taxes, maintenance, etc. See IRS Schedule E on the IRS website.
From a "fraudless" standpoint you are better off renting it to your in-laws on a lease (with option to buy, if you like) and be truthful about it wherever appropriate.
Quote:
Originally Posted by a_guerrajr
We've discussed our concerns and how it would play it in a financial hardship situation and all sides have come to an agreement that we are all happy with. What will probably happen is they will sell their current home and use the proceeds to pay off this home, and once done we transfer ownership and done.
In the meantime, whatever can go wrong WILL go wrong. Nothing good ever comes from an intra-family financial arrangement. When the inevitable blow-up happens, you'll regret having not just sold the house.
If the current home was your primary residence for at least two out of the last five years AND you have a profit, were you to sell it, a gain of $250,000 each for you and your wife will be tax free (under current tax law).
Once you start renting it, you will be dealing with depreciation, (eventual recapture when selling), tax on rental income above actual cost, etc., not to mention the liability. Plus tax laws are sure to change under the current administration.
Whatever you decide to do, keep meticulous written records for everything! (Agreements, payments, etc.)
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